Evidence Regarding Elimination of IFRS-U.S. GAAP Reconciliation

The main purpose of this paper is to provide initial evidence regarding the effects of the Securities and Exchange Commission (SEC)'s decision to eliminate the International Financial Reporting Standards (IFRS)-U.S. Generally Accepted Accounting Principles (GAAP) reconciliation by examining short-window trading volume reactions for the year of the elimination and the year prior to the elimination. This provides an important partial snapshot regarding the effects of eliminating U.S. GAAP on the U.S. capital markets. Our results indicate that trading volume decreased the year the reconciliation was eliminated which is consistent with a significant decrease in value relevant information available to equity investors related to those firms that eliminated the U.S. GAAP reconciliation. To further validate our findings, we also compare changes in trading volume for our sample firms with a control group of foreign private issuers unaffected by the SEC's rule to eliminate the reconciliation. We find the decrease in announcement period volume to be significantly greater for foreign private issuers that eliminate the reconciliation. These results are consistent with the interpretation that value relevant information has been lost to the capital markets for those firms no longer required to reconcile back to U.S. GAAP.